Fibonacci tools are a standard technical analysis tool for gold traders to estimate future potential prices of precious metals. Suppose you can use Fibonacci retracement and extension properly with other technical analysis tools like trend lines, volume readings. Even you can try other technical indicators like moving average convergence divergence (MACDs) and moving averages for trading gold.
In that situation, you will almost certainly achieve favorable results when trading gold. Aside from that, the Fibonacci retracement and extension tool has been shown to be helpful when it comes to predicting future support and resistance levels based on prior price action.
The Fibonacci sequence can tell you whether the market is going to be in an uptrend or a downtrend and which prices will act as solid support and resistance shortly. These Fibonacci trading tools also identify the particular points during which traders should buy or sell their gold trades to maximize their profit potential.
Fibonacci strategy is a profitable trading method. It works in both short-term and long-term gold trading charts. However, traders get annoyed when the instrument doesn’t perform well since they can’t determine the right highs and lows.
Instead, use more known tactics like chart reading or technical indicators. With persistence, precision becomes an advantage, earning lifetime edges, improving confidence, and lowering risk through appropriate money management. In this educational blog post, we will learn how to use Fibonacci tools to trade gold in both short and long-term trading.
One way to trade is by using the Fibonacci retracement tool. Fibonacci retracement levels allow you to analyze pullbacks, reversals, and corrections within a range of primary uptrends or downtrends. The key Fibonacci ratio also helps to identify the strong support and resistance levels.
Technical analysis is the art of predicting what will happen with a currency, commodity, or equity in response to changes. The basic and most commonly key Fibonacci ratios are 23% -382%, 50%, 61.8%, 78.6%, and 100%.
You need to customize it when you want to trade with the Fibonacci retracement tool to create a trading signal to trade gold. We already know that the Fibonacci retracement tool helps us identify the pullbacks, reversals, and corrections price zone, and every retracement level works as strong support and resistance levels.
How to create a buy signal with Fibonacci Retracement?
First of all, identify the market trends. For example, trading with Fibonacci will need a high and low price. in the uptrend market, draw Fibonacci from low price to high price. In the upward trend gold market, you have to find the opportunity to buy.
Now you customize the Fibonacci levels. from my experience i have seen 0%, 12%, 23.6%, 38.2%, 50%, 61.8%, 78.6% and 100% are best Fibonacci retracement levels those really works on gold’s chart.
Every Fibo level will work as a support and resistance. See the chart above. We have used Fibonacci retracement levels on gold’s upward trend market. So, we must identify the buy zone on gold retracement and corrections.
50 and 61.8% Fibonacci retracement levels work as a correction level and strongly support the uptrend market. So if we see in the uptrend market, price correct from the high level to 50-61.8% Fibonacci retracement levels, now prepares for the buy.
But don’t rush because you don’t know it’s a correction or trend changer. So what to do? Let them close the candlestick. If gold’s price closes above the 61.8% Fibonacci levels and creates any bullish candlestick pattern, it’s time to buy.
I will suggest you use MACD as well with the Fibonacci retracements technical analysis tool. It will give you more confirmation. So, after getting confirmation from Fibonacci retracements and MACDs, open a buy trade on gold.
Now the question is, where will stop loss and take profit? You don’t need to use significant stop loss using Fibonacci. That is an interesting fact about Fibonacci retracements. Just use your stop loss below 61.8% swing area or immediate candle lows.
For take profit, if you buy at 61.8% Fibonacci retracements, the take profit 1 area should be at 50% area. Now close half trade and carry the rest of the lot. So take profit two areas will be the 38.2% Fibonacci retracement levels. Here you close more 30% lot—the rest of 20% lot close at 23.6% Fibonacci level.
You shouldn’t buy above 23.6% to 0% area. Because you don’t know the financial markets are falling back again, or it will just keep rising. If the market breaks above 0% Fibonacci level, I mean the swing-high area where the market dropped, then we will draw our chart again and continue our buy order when the market retraces nearly 50%-61.8% Fibonacci retracement levels. See our chart above for a better understanding.
How to create a Sell signal with Fibonacci Retracement?
For the sell signal, follow the same theory but identify the trend first. For example, in the downtrend, draw your chart from swing-high to swing-low price.
50 and 61.8% Fibonacci retracement levels will work as strong resistance in the downtrend market. So if we see in the downtrend market, price correct from the swing-low level to 50-61.8% Fibonacci levels, now prepares for the sell.
Here also use MACD and don’t rush. Let the market close; consider a bearish candlestick pattern. If everything confirms, open a short trade and close your trade as you closed at buy signal.
Now the question is, where will stop loss and take profit? You don’t need to use massive stop-loss using Fibonacci. Just use your stop loss above 61.8% swing area or immediate candle’s high. Then, all the profit areas will be the same as we did in the buy signal.
And remember, don’t trade at 23.6% to 0.00% Fibonacci level unless it breaks and stable. You don’t know whether the market is changing trends or it’s a correction or retracement.
A Fibonacci extension can give us insight into the set price targets and additional profitable exit zones. If any exist at particular levels based on these projected outcomes, all things we would want sure enough before taking part in such trades.
So we use the Fibonacci extension, especially during news trading that how long can the market go up or down. See the chart above on how to use the Fibonacci extension tool.
The Fibonacci extension levels are made up of groupings of numbers that are not part of the Fibonacci numeral system as its whole. The primary and most commonly used Fibonacci extension levels are 61.8 percent, 100 percent, 123.60 percent, 138.2 percent, 161.8 percent, 261.8 percent, and 423.6 percent.
How to trade gold during news with Fibonacci Extension?
During economic news, we should select a lower time frame. However, I do usually prefer 5 minutes charts. If news favor rising the gold price, draw a Fibonacci retracement from swing-low to swing-high area.
Then, wait for some retracement from swing-high to Fibonacci levels 50-61.8% level. If you see the market respect the Fibonacci retracement levels 50-61.8% level and try to go up, then consider buying opportunity. I use custom Fibonacci Extension levels. I do use 61.8%, 100%, 123.6%, 138.2% and 161.8%. These Fibonacci extension levels are awesome while you trade gold during the economic news.
Now use the Fibonacci extension tool, draw from swing-low from the swing-high area and point out the 61.8% Fibonacci retracement price. It will automatically point to the upcoming resistance level, and we will start to buy after breaking above the swing-high area. Every resistance level will work as a profit-taking area. Stop-loss should be below the 61.8% retracement price levels.
On the other hand, if the economic reports disfavor the gold price, draw a Fibonacci retracement from swing-high to swing low area. Follow the same rules as you did when you bought gold. First, wait for some correction from swing-low to Fibonacci retracement level of 50-61.8%. If the gold price can’t break above 61.8%, then look for sell opportunities.
Now use the Fibonacci extensions trading tool. Draw from swing-high to swing-low price zone and point out the Fibonacci retracements of 61.8%. It will automatically identify the next target price level.
Finally, after breaking below the swing-low area, go for short. Keep your stop loss above 61.8% Fibonacci retracement level. Follow money management and enjoy the profit. For a better understanding, see our chart above.
What are the advantages of Fibonacci tools?
Pivoting is a technique used in technical analysis to predict price reversals. Pivot points are unusual because financial specialists like John Embry and Bill Barber, who produced “A Practical Guide To Technical Analysis,” have shown them in research.
With the appropriate chart settings, pivot indicators can effectively identify early reversal levels before moving deeper into them and confirm shifts in later stages of trading trends. Fibonacci is one of the best pivot point indicators as well.
Most importantly, it is versatile. It works on every asset in any financial market, but more significant periods produce more accurate indications. However, uncertain price fluctuations make all bets dangerous due to a lack of vision. But you can use this tool to predict the market in any market condition.
The most technical analysis depends on formulas established from prior periods’ trends, and we can understand the market psychology with Fibonacci trading strategies. Moreover, the Fibonacci ratios may accurately represent both human and natural inclinations, which is essential when constructing a trading strategy based on this type of math.
What are the disadvantages of Fibonacci tools?
The challenge of selecting a beginning point for an upward or downward trend has no simple solution. Furthermore, it can be challenging even when exiting the flat-ish region because trends never terminate perfectly or even close enough.
Occasionally, a signal is simply an incorrect price estimate. However, the market does not always follow your rules, and it is sometimes preferable to be mistaken about something than to have no idea what will happen in the future.
What can’t be done with the tool in Expert Advisors because grid-building algorithms aren’t available? As a result, algorithmic techniques will not profit from this feature because it is hard to implement within the EA code itself, and other tools must be entered manually.
What is the Fibonacci Golden Ratio?
The Fibonacci series is essential to the study of a number of Fibonacci ratios. The most noticeable characteristic in this work seems to be 1.618, or what’s called “the golden Fibonacci ratio.” Many examples throughout nature adhere to these proportions; seem like an inherent part of building blocks everywhere you look.
In financial markets, golden Fibonacci ratios have been used for centuries to analyze patterns and sequences. This abstract number can be translated into three percentages: 38.2% Fibonacci sequence (often rounded), 50% Fibonacci sequence, and 61.8% Fibonacci sequence. In addition, traders often add other multiple Fibonacci ratios such as 23.6 %, 161.8%, 423%, and so on.
The 38.2% Fibonacci sequence is used to determine how much one number goes into another. They’re both invested at a rate that changes over time, like interest on loans or investment returns.
It’s also called “interest parity” because it lets you know if two financial products have similar risks and rewards despite coming from different sources–just by looking up their rates in this table.
With a 23.6% Fibonacci sequence, we can see three times as many investments where eight units go towards 34 Fibonacci sequences instead of 25%. And with 80/20 being so common among investors these days.
You can use many technical tools and indicators for trading gold. But from my experience, I have seen from my long time trading experience, gold’s chart respects Fibonacci ratios. Most of the time market follows its retracement numbers.
Key golden ratio Fibonacci numbers are helpful, especially 61.8% and 1,618%. You will often see a 61.8% Fibonacci number that will give you a trade opportunity. You have to know how to apply Fibonacci retracement levels perfectly for your profit targets. I will suggest you build a Fibonacci trading strategy and follow up on how the golden ratio work.
No technical tools can indeed give you a 100% guarantee. But suppose you can build good trading strategies using Fibonacci tools and following money management. In that case, I can ensure you that you will be in profit, whatever the market conditions are.